Titan debt conversion may boost liquidity; recent revolver is smaller

By Devika Patel

Knoxville, Tenn., March 15 – Titan International, Inc. executives said that noteholders’ recent conversion of its 5.625% convertible senior subordinated notes due Jan. 15, 2017 into common stock has helped its leverage levels, strengthened its balance sheet and improved liquidity.

The company’s management also commented on its new revolver, which will reduce annual costs since it is smaller than the previous facility.

“Holders of a substantial majority of convertible bonds which matured in January 2017 chose to convert from debt to Titan shares,” chief financial officer James M. Froisland said on the company’s fourth quarter earnings conference call on Wednesday.

“This conversion represented more than $58 million or 98% of the total convertible debt outstanding.

“This shift from debt to equity will further strengthen our balance sheet as well as reduce future interest costs,” Froisland said.

Froisland also commented on the company’s new $75 million revolver, obtained in February 2017.

As with the previous facility, the new revolver is collateralized by accounts receivable and inventories of certain domestic subsidiaries.

“This new credit facility extends the maturity date from the previous maturity of December 2017 to the earlier of five years, which is February of 2022, or six months prior to maturity of the company’s 6.875% senior secured notes due in October 2020.

“The new facility is $75 million smaller than the previous facility and better matches the size of our collateral and will reduce annual costs thereof,” Froisland said.

The company’s cash balance remains static and president and chief executive officer Paul G. Reitz said that the company no longer has any near-term leverage concerns since the conversion of the debt.

Liquidity concerns have largely been addressed through the company’s operating performance and the conversion, Reitz said, although there is still room for improvement.

He also noted that the company is not targeting any specific leverage level.

“We’ve maintained the same cash balance for three years,” he said on the call.

“If you look at our cash balance, it says $150 million, roughly, of cash, but we moved $50 million into investments, so we’re right around that same $200 million level that we’ve been at for the past three years.

“I don’t think we’re facing any near-term [leverage] issues; we had the conversion [of the convertible bonds] that converted in January.

“As far as the leverage ratio, when you look at the ability we have to monetize [our] assets, you look at our balance sheet, you look at our cash position, I don’t think we have a specific leverage target that we’re looking at,” Reitz said.

“We understand that, at the beginning of 2016, there were concerns regarding Titan’s liquidity,” Reitz said in a press release.

“With our 2016 operating performance, as well as the recent convertible debt conversion and maturity, we believe that much of that concern has been addressed.

“Notwithstanding the improvement in our numbers, we realize we have more to do,” Reitz said in the release.

The company’s total long-term debt balance was $408.8 million at Dec. 31, 2016, compared to $475.4 million at December 31, 2015.

Short-term debt balance was $97.4 million at Dec. 31, 2016 and $31.2 million at Dec. 31, 2015.

Net debt was $308.3 million at Dec. 31, 2016, compared to $306.5 million at Dec. 31, 2015.

At Dec. 31, 2016, the company had $147.8 million of cash and cash equivalents, with no outstanding borrowings on its $150 million revolving credit facility.

Convertibles

On Jan. 17, Titan said holders converted $58.46 million, or 97.1%, of the principal balance of the company’s 5.625% convertible senior subordinated notes due Jan. 15, 2017 into Titan common stock.

The notes were converted into 5,462,264 shares of common stock, representing about 10% of Titan’s outstanding common stock prior to conversion.

Each $1,000 of notes was convertible into 93.436 shares of common stock.

The initial base conversion rate for the notes was 93.0016 shares per $1,000 principal amount, equivalent to an initial base conversion price of about $10.75 per share. The base rate was increased by 0.4344 shares as determined by a formula described in the note indenture.

Prior to their Jan. 15 maturity, $60,161,000 of the convertibles was outstanding. The $1,701,000 of notes not converted was paid in cash.

The company said at the time that its only remaining outstanding senior notes are its $400 million of senior secured notes due 2020.

Credit facility

On Feb. 17, the company entered into a credit and security agreement with respect to a new $75 million revolving credit facility.

BMO Harris Bank, NA was the agent, lead arranger and bookrunner.

The revolver includes a $25 million sublimit for letters of credit.

The new facility is collateralized by accounts receivable and inventory of some of the company’s domestic subsidiaries. It includes a maturity of the earlier of five years and six months prior to maturity of the company’s 6 7/8% senior secured notes due in October 2020.

Interest is equal to Libor plus 125 basis points to 175 bps, depending on availability. Initially, interest is Libor plus 150 bps.

The facility replaced Titan’s $150 million revolving credit facility, which was previously scheduled to terminate in December 2017.

Titan International is a holding company based in Quincy, Ill. Its subsidiaries supply wheels, tires, assemblies and undercarriage for off-highway equipment used in agricultural, earthmoving/construction and consumer applications.

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